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Chapter 12: Q. 7 (page 278)
Assume that the multiplier in a country is equal to and that autonomous real consumption spending istrillion. If current real GDP istrillion, what is the current value of real consumption spending?
The true cost of spending is trillions of dollars.
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Identify the primary determinants of planned investment
At an initial point on the aggregate demand curve, the price level is , and real GDP is trillion. When the price level falls to a value of , total autonomous expenditures increase by billion. The marginal propensity to consume is . What is the level of real GDP at the new point on the aggregate demand curve?
Classify each of the following as either a stock or a flow.
a. Myung Park earns per week.
b. Time Warner purchases million in new telecommunications equipment this month.
c. Sally Schmidt has in a savings account at a credit union.
d., Inc., produces units of output per week.
e. Giorgio Giannelli owns three private jets.
f. Apple's production declines by digital devices per month.
g. Russia owes billion to the International Monetary Fund.
Describe how equilibrium real GDP is established in the Keynesian model
At various times in the past-the early s, early s, early s, and late s-business profit expectations plummeted, and firms cut back on their investment spending. The ratio of total investment spending to companies' aggregate profit flows decreased markedly. In each instance, real GDP declined, and the U.S. economy fell into recession. At the end of the recession intervals of the early s, early s, and early s, business profit expectations improved. Firms responded by boosting their investment spending, and both real GDP and the ratio of investment expenditures to firms' profits recovered fully. At the conclusion of the late-s recession, however, this ratio failed to return to its previous level. By the time you have completed this chapter, you will understand why the result during this current decade has been a sluggish improvement in real GDP and, hence, an unusually slow economic recovery.
Evaluate why autonomous changes in total planned expenditures have a multiplier effect on equilibrium real GDP
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